The UK mustn't be STUPID

The PIGS (Portugal, Italy, Greece and Spain) are old hat. The new acronym on
trading floors for possible dominoes if Greece should fall is STUPID (Spain,
Turkey, UK, Portugal, Italy, Dubai).

By Hugo Dixon, Reuters Breakingviews

11:12PM GMT 08 Feb 2010

This should worry the UK. It's not one of the PIGS but is considered STUPID. Given the way such acronyms can become contagious, the UK needs to distance itself from the others.

First, politicians must avoid any comparison between the UK and Greece. David Cameron, the Conservative leader, is making a grave error in underlining the similarities. It may, at the margin, help him win the election. But the more Greece and the UK are associated in the mind of the markets, the worse.

Second, the Government needs to produce a credible Budget. Ideally this would include enough fiscal tightening to show that the UK, with a 2010 budget deficit forecast at 13pc of GDP, is on the path to responsibility, while not slamming on the brakes so hard the country is tipped back into recession.

The gap between the Scylla of irresponsibility and the Charybdis of renewed recession is narrow. In an election Budget, the temptation will be to steer closer to the former. But that is more dangerous.

Finally, the Government should comprehensively identify all the major ways in which the crisis could spread to the UK and draw up associated contingency plans.

One risk is that the UK is unable to fund new borrowing while also refinancing the roll-over of its existing mountain of government debt. Then there is the possibility that a crisis erupts in the middle of the campaign, when politicians are away from their desks.

Appropriate Plan Bs might include putting in place contingency financing, and identifying an economic war cabinet that could meet even in the heat of electoral battle.